LONDON (Reuters) - World markets remained
under pressure on Friday after the downing of a Malaysian airlines
jet at the Ukraine-Russia border, new sanctions on Moscow and unrest
in Gaza had sent investors scurrying into defensive assets.

European shares saw more selling after falling heavily on Thursday,
while German government bond yields remained near record lows,
driven by uncertainty.

World leaders demanded an international investigation into the
shooting down of the Malaysian plane with 298 people on board over
eastern Ukraine, as Kiev and Moscow blamed each other for a tragedy
that stoked tensions between Russia and the West.

Russia markets took the heaviest hit. Dollar-traded stocks in Moscow
were down another 2.5 percent to take their losses for the week to
more than 8 percent. The rouble, however, was up almost half a
percent though it was heading for its heaviest weekly loss in more
than a year.

"While Ukraine, Russia and the rebels deny any involvement or
responsibility, tensions will most likely continue into the
weekend," Michael Rottmann, head of fixed income strategy at
UniCredit, said.

"Furthermore, Israel sending ground troops into the Gaza Strip adds
to geopolitical concerns. While at current levels both Bunds and
U.S. Treasury valuations look extremely rich, it is clearly not the
time to position in the opposite direction."

There were, however, some signs that markets were trying to steady.
Some analysts wondered whether the Malaysian jet tragedy could bring
the two sides in Ukraine to the negotiating table and take the heat
out of the crisis.

The United States called for an immediate ceasefire to allow easy
access to the crash site, while pro-Russian separatists told the
Organisation for Security and Cooperation in Europe (OSCE), a
security and rights body, they would ensure safe access for
international experts visiting the scene.

Gold dipped as buyers cashed in on some of its 1.5 percent overnight
jump, while the Japanese yen and U.S. government bonds - investors'
traditional go-to safe-haven assets - both gave up some ground.

European shares clawed back some of their initial falls and
International Consolidated Airlines, owner of British Airways and
Iberia, rose though Air France and Lufthansa were down.

U.S. futures were also flat, suggesting some measure of
stability might return to U.S. markets.

The situation in Ukraine and the rising tensions between the West
and Russia were not the only concern weighing on sentiment, however.

Israel announced the start of a Gaza ground campaign on Thursday
after 10 days of aerial and naval bombardments failed to stop
Palestinian rocket attacks.

Asian markets had a turbulent day. Most emerging Asian currencies
fell and Japan's Nikkei stock average tumbled 1 percent to keep
MSCI's 45-country All World index on course for a second week
of falls.

"The general theme in the market, the predominant theme today, seems
to be risk aversion. So we do expect dollar/Asia to head higher in
the near term," said Divya Devesh, currency strategist for Standard
Chartered Bank in Singapore.

"Whether this move will be sustained is still quite uncertain. It
will depend on how the geopolitical risks unfold."

The dollar edged up about 0.2 percent to 101.34 yen <JPY=>, clawing
back some of its slide of nearly 0.5 percent overnight, its biggest
one-day loss since early April.

The euro, which has lost roughly 0.9 percent against the yen this
week, traded at 137.05 yen after reaching a five-month low and
hovered near a one-month low versus the dollar at $1.3529.

In commodities trading, U.S. crude oil gained about 0.3 percent to
$103.53 a barrel after jumping by more than $2 on Thursday and Brent
was fetching 108.25, up 1.5 percent on the week. Russia pumps more
than a tenth of the world's crude.